Online retail has been the biggest driver of e-commerce, to the extent that both these words have been used interchangeably. Each country started with its own local player that educated customers on online retail and raised the digital maturity of the region.
After all, this was a relationship built over 13 years. Also, there is something inherently indigenous about the word “souq”.
Structurally, most online marketplaces have two or three large and well-funded players. In India, Flipkart and Amazon emerged as the incumbent players, while Alibaba and jd.com are the key players in China. Souq is an incumbent with a double-digit market share in online retail while Noon has emerged as a credible player.
Does the rebranding to Amazon.ae change anything?
Amazon is a pioneer — innovations such as one-click and Amazon Prime have had a high impact on growth of the sector. Their market share in the US is estimated to be around 50 per cent of the total online retail market.
In fact, Amazon was already popular and had a high brand recall in GCC even before buying Souq. This was primarily because of the high percentage of expats and the connection of the local population with western markets. Cross-border trade is popular still accounts for 30-35 per cent of the market accordingly to our estimates. Amazon had almost 15 per cent plus of the online retail market in some parts of this region even before the Souq association.
Noon had a few hiccups initially, but now is getting its act together. It had raised $1 billion in early stage funding, making it one of the few unicorns even before its launch.
The company has focused on building an indigenous ecosystem across the value chain. There is a strategic tie up with regional distributors such as Alshaya to consolidate supply on its platform. It is building its own logistics network, warehouse management and payment platforms.
There is a tie up with eBay to provide the latter’s global product selection to customers in the region. Noon’s founder, Mohammad Alabbar, has already called for protection for the local eCommerce ecosystem and that rhetoric will only become stronger with the launch of amazon.ae.
We have been analysing the leadership dimensions of online retailers in recent years. Analysis shows that there are three dimensions that drive leadership in the online retail market:
* Maximum value for money and a wider meaningful assortment;
* Best buying experience from product discovery to post-delivery experience; and
* Most preferred brand for online customers
Online retailers need to provide all three to become a leader. Amazon already has its Prime (though not fully available in the region yet) providing two-day free shipping to its customers along with bundled video and music streaming services.
Noon has the eBay partnership and its increasing penetration with local distributors to provide a meaningful assortment. Also, both have deep pockets to provide discounts and gain market share. However, this would be costly as a deal-seeking customer is generally not loyal.
In our experience, the biggest differentiator could be the ability to be the trusted brand along with a great buying experience. This can give a sustainable advantage to the players.
This could be especially tricky for Amazon in Saudi Arabia, where it faces geopolitical challenges in the short term. One thing is certain — the online retail supply landscape is heating up.
Sandeep Ganediwalla is Managing Partner at Redseer Consulting M.E. Anuj Kumar is Engagement Manager at the company.